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How Do Big Banks Define "Scalping"?
- Thread starter achilles28
- Start date
They do sometimes call it scalping, more frequently sniping. What gets the sell-side's goat is/was latency arb and the fact that they could get picked off when they were streaming prices to so many venues. A great one was seen in USD/CAD where someone would put in a spoof bid on Reuters, and all the autoquote engines would adjust. Sniper would whack them all, ie for a nifty 50, bank goes to turn and the liquidity not there at the price. One of the reasons why the phrase 'liquidity mirage' came around.
The banks' response has been crude and brutal. If they believe you have picke them off, they will kick you off their own platform (if you have access) and threaten the ECN if it's been done indiferecly to pull liquidity. A mate who works at a large hedge fund had one of the major liquidity providers in recently moaning - his response was to ask why they didn't hold the position as he said he wasn't that good!
Frequently, the sell-side liquidity providers don't really have risk takers on the spot desk. They are well-paid order management clerks who manage the franchise for a 6-figure basic salary.
The prop desks will quote real money and some hedge funds and the like, but not for every small trade.
Hope that makes sense.
The banks' response has been crude and brutal. If they believe you have picke them off, they will kick you off their own platform (if you have access) and threaten the ECN if it's been done indiferecly to pull liquidity. A mate who works at a large hedge fund had one of the major liquidity providers in recently moaning - his response was to ask why they didn't hold the position as he said he wasn't that good!
Frequently, the sell-side liquidity providers don't really have risk takers on the spot desk. They are well-paid order management clerks who manage the franchise for a 6-figure basic salary.
The prop desks will quote real money and some hedge funds and the like, but not for every small trade.
Hope that makes sense.
Quote from atticus:
... Regardless, they need paper to offset, or a ready replication. There is an assumption of soft-dollar edge in that the counterparty is an idiot and there is edge implied in taking the other side of the transaction.
Correct me if I'm wrong - but this is automated arbitrage?
Hitting the outlier before the counter party (bank) can lay off risk.
Is this how most banks define 'abusive scalping'? What about the trader who holds a position for 30 seconds to a minute?
That type of trading - albeit, still traditionally regarded as 'scalping' - shouldn't frustrate liquidity providers, as, presumably, their automated risk management systems would lay off in a small fraction of that time.
IOW, is the non-automated scalper safe from the pernicious kiss of death?
Quote from MrAngry:
They do sometimes call it scalping, more frequently sniping. What gets the sell-side's goat is/was latency arb and the fact that they could get picked off when they were streaming prices to so many venues. A great one was seen in USD/CAD where someone would put in a spoof bid on Reuters, and all the autoquote engines would adjust. Sniper would whack them all, ie for a nifty 50, bank goes to turn and the liquidity not there at the price. One of the reasons why the phrase 'liquidity mirage' came around.
The banks' response has been crude and brutal. If they believe you have picke them off, they will kick you off their own platform (if you have access) and threaten the ECN if it's been done indiferecly to pull liquidity. A mate who works at a large hedge fund had one of the major liquidity providers in recently moaning - his response was to ask why they didn't hold the position as he said he wasn't that good!
Frequently, the sell-side liquidity providers don't really have risk takers on the spot desk. They are well-paid order management clerks who manage the franchise for a 6-figure basic salary.
The prop desks will quote real money and some hedge funds and the like, but not for every small trade.
Hope that makes sense.
Yes, it does. Thanks.
So when banks talk abusive scalping, thats all it is - latency or automated arbitrage, executed before sell-side can lay off risk?